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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

Or

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-32966

OSIRIS THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

443-545-1800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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OSIRIS THERAPEUTICS, INC.

INDEX

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PART I — FINANCIAL INFORMATION

Item 1.           Financial Statements — Unaudited

OSIRIS THERAPEUTICS, INC.
CONDENSED BALANCE SHEETS
(amounts in thousands, except per share amounts)

The accompanying notes are an integral part of these financial statements.

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OSIRIS THERAPEUTICS, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(amounts in thousands, except per share data)

The accompanying notes are an integral part of these financial statements.

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OSIRIS THERAPEUTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS

Unaudited
(amount in thousands)

The accompanying notes are an integral part of these financial statements.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

1.  Description of Business and Significant Accounting Policies

Description of Business

Osiris Therapeutics, Inc. (“we,” “us,” “our,” or the “Company”) is a Maryland corporation headquartered in Columbia, Maryland. We began operations on December 23, 1992 and were a Delaware corporation until, with approval of our stockholders, we reincorporated as a Maryland corporation on May 31, 2010. We are a leading cellular and regenerative medicine company focused on researching, developing and marketing products in the wound, orthopedic, and sports medicine markets.

From 2010 to 2013, we operated our business in two segments, Biosurgery and Therapeutics. We now operate only our Biosurgery business, as a result of the sale of our Therapeutics segment assets in the fourth quarter of 2013, as discussed further below. Our Biosurgery business focuses on products for wound care, orthopedics, and sports medicine to harness the ability of cells and novel constructs to promote the body’s natural healing. Until it was sold, our Therapeutics business focused on developing biologic stem cell drug candidates from a readily available and non-controversial source—adult bone marrow.

Our Biosurgery business has continued to grow since its inception, and we have increased our organizational focus on the development and commercialization of products in this segment. Consistent with this organizational focus, as discussed further in Note 2— Discontinued Operations below, on October 10, 2013, we entered into a Purchase Agreement to sell our Therapeutics segment, including all of our culture expanded mesenchymal stem cell business, including Prochymal and other related assets. We eliminated the Therapeutics segment from our continuing operations as a result of the disposal transaction, and have presented the assets, liabilities, and results of the segment’s operations as a discontinued operation for all periods presented. Our continuing operations now represent the portion of our business previously referred to as our Biosurgery segment.

Unaudited Interim Financial Statements

Except for the Balance Sheet as of December 31, 2014, which was derived from audited financial statements, the accompanying condensed financial statements are unaudited.  The accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of our results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. This Quarterly Report on Form 10-Q should be read in conjunction with our financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Due to the inherent uncertainty involved in making those assumptions, actual results could differ from those estimates. We believe that the most significant estimates that affect our financial statements are those that relate to deferred tax assets, inventory valuation, allowance for doubtful accounts, share-based compensation and the value of the derivative obtained in connection with the sale of our former Therapeutics business.

Reclassifications

We have reclassified certain prior-year amounts for comparative purposes. These reclassifications did not affect our results of operations or financial positions for the periods presented.

Cash and Cash Equivalents

Amounts listed as cash on our balance sheets are maintained in depository accounts at a commercial bank. Cash and cash equivalents, which include highly liquid investments with maturities of three months or less when purchased, held in our brokerage investment accounts are classified as investments available for sale, as the amounts represent investments that have matured and are anticipated to be reinvested in debt securities in the near future, and are disclosed at fair value, which approximates cost.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

1.  Description of Business and Significant Accounting Policies - continued

Investments Available for Sale

Investments available for sale consist primarily of marketable securities with maturities less than one year. Investments available for sale are valued at their fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss). All realized gains and losses on our investments available for sale are recognized in results of operations as other income.

Investments available for sale are evaluated periodically to determine whether a decline in their value is “other than temporary.” The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. We review criteria such as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. If a decline in value is determined to be other than temporary, the carrying value of the security is reduced and a corresponding charge to earnings is recognized.

Trading Securities - Derivative and Securities Received in Business Disposition

As discussed in Note 2 — Discontinued Operations, we disposed of our Therapeutics segment in October 2013.  A portion of the consideration for the sale of that business was stock of Mesoblast Limited (“Mesoblast”), the parent of the purchaser. We were required to hold that stock for one year from the date of receipt. Mesoblast is a public company and its stock is traded on the Australian stock exchange.

The Mesoblast stock was previously subject to limited price protection for the one year required holding period. To the extent the value of those shares decreased during the holding period, Mesoblast was required to pay us for the decrease in value. This payment was to be made at least one half in cash and at the option of Mesoblast, up to one half in additional shares of Mesoblast stock. Any additional Mesoblast stock would also have to be held for one year during which period there was no further price protection. The price protection was accounted for as a derivative under ASC 815, Derivatives and Hedging, and, as such was recorded on the balance sheets at fair value, with changes recognized in net income. We elected to measure the Mesoblast stock at fair value with changes in fair value reflected in net income, as permitted under ASC 825-10, Financial Instruments—Fair Value Option.  In December 2014, the price protection on these shares expired and Mesoblast agreed to pay us the difference between the prevailing market value of the Mesoblast stock and $15 million in the first six months of fiscal 2015. As of December 31, 2014, this $15 million was shown as $10.6 million in Trading Securities and $4.4 million in Other Receivables on our Balance Sheets. In June 2015, we received $6.2 million in cash from Mesoblast for the difference between the market value of the Mesoblast stock and the $15 million agreed to be paid to us by Mesoblast. Also in June 2015, we began selling the shares of Mesoblast stock through a stockbroker in Australia. As of June 30, 2015, we sold 78,951 shares of Mesoblast stock and realized a gain of $2,000. As of June 30, 2015, the market value of the remaining 2,869,778 shares of Mesoblast stock held by us was $8.3 million. In the fiscal quarter ended June 30, 2015, we recognized an unrealized loss on the value of the Mesoblast stock of $261,000, as a component of Other Income (Expense), Net. We expect to sell all of the Mesoblast shares by the end of this fiscal year.

Trade Accounts Receivable

Trade accounts receivable are reported at their net realizable value. We charge off uncollectible receivables when the likelihood of collection is remote. We set credit terms with individual customers, and consider receivables outstanding longer than the time specified in the respective customer’s contract, typically 45-days, to be past due. As of June 30, 2015 and December 31, 2014, accounts receivable in the accompanying balance sheets is each reported net of $261,000 and $1.3 million allowance for doubtful accounts, respectively. During the fiscal quarter ended June 30, 2015, we entered into a settlement agreement with a former customer and wrote off $995,156 of accounts receivable against the allowance for doubtful accounts.  This amount was fully reserved as of December 31, 2014.

Trade accounts receivable balances are not collateralized. We did not incur additional bad debt expense during the three months or six months period ended June 30, 2015. We incurred $50,000 of bad debt expense during the three months and six months period ended June 30, 2014, respectively.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

1.  Description of Business and Significant Accounting Policies - continued

Other Receivables

Other receivables at June 30, 2015 include $243,000 due to us from the sale of 78,951 shares of our Mesoblast stock. As of June 30, 2015, we received from Mesoblast $6.2 million in cash for the difference between the market value of the Mesoblast ordinary shares held by us and the $15 million to be paid to us by Mesoblast for such shares. Other receivables at December 31, 2014 included the $5.0 million fee payable from Stryker, as further described below, and the $4.4 million difference between the market value of the Mesoblast ordinary shares and the $15 million agreed to be paid to us by Mesoblast.

Inventory

We began carrying inventory of our Biosurgery products on our balance sheet following commercial launch of such products. Inventory consists of raw materials, biologic products in process, and products available for distribution. We determine our inventory values using the first-in, first-out method. Inventory is valued at the lower of cost or market, and excludes units that we anticipate distributing for clinical evaluation. Materials and supplies purchased for product development and product improvement activities are expensed as incurred.

Property and Equipment

Property and equipment, including improvements that extend useful lives, are valued at cost, while maintenance and repairs are charged to operations as incurred. Depreciation is calculated using the straight-line method based on estimated useful lives ranging from three to seven years for furniture, equipment and internal use software. Leasehold improvements and assets under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease.

Valuation of Long-lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized for the difference between the fair value and carrying value of assets. Fair value is generally determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk. There were no impairment losses recognized during the first six months of fiscal 2015 or during fiscal year 2014.

Biosurgery Revenue Recognition

We recognize revenue from product distribution when title passes to the customer.  Title usually passes when the product is shipped to the customer and leaves our loading dock.  In some situations, we store consigned inventory on site in freezers at hospital or clinic facilities.  No revenue is recognized upon the placement of inventory into consignment as we retain title and maintain the inventory on our balance sheets. For these products, revenue is recognized when we receive appropriate notification that the product has been used in a surgical procedure. We verify the condition and status of all consigned inventory on at least a quarterly basis.  Due to the nature of our products and the need to ensure they are maintained at the proper frozen temperature, we generally do not allow product returns.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

1.  Description of Business and Significant Accounting Policies - continued

In December 2014, we entered into an exclusive distribution agreement with a subsidiary of Stryker Corporation for the marketing and distribution of BIO4, our viable bone matrix allograft.  Pursuant to the agreement, Stryker has been granted worldwide distribution rights to the product and any improvements, for all surgical applications. We are responsible for supply, processing, inventory management, shipments to customers, continued research and product improvement activities. We recognize as revenue the amounts charged to customers for the allografts.  Commissions and administrative fees paid to Stryker are accounted for as selling expenses, as Stryker is acting as outside sales and marketing agent for Osiris. We received an initial exclusivity fee of $5.0 million in the first six months of fiscal 2015 and are entitled to receive additional fees upon any exercise by Stryker of its right to extend the initial term, whether on an exclusive or non-exclusive basis. The exclusivity fee and any extension fees subsequently received are considered to be adjustments of the selling expenses.  As such, we recognize the exclusively fee as a liability, which will be amortized over the related exclusivity period in proportion to the expected fees to be paid to Stryker, as an offset to selling expenses. We amortized $314,000 and $373,000 for the three and six months ended June 30, 2015, respectively. At December 31, 2014, we recorded a $5.0 million receivable with the offset to short-term deferred commissions of $1.7 million and long-term deferred commissions of $3.3 million.  At June 30, 2015, the short-term and long-term deferred commissions were $1.7 million and $3.0 million, respectively.

In October 2014, we entered into an exclusive commercial and development partnership for our cartilage product, Cartiform, with Arthrex, Inc. The agreement provides Arthrex with exclusive commercial distribution rights to Cartiform beginning in 2015. We are responsible for product processing, continued research and product improvement activities. The responsibilities related to the design and conduct of future clinical development programs are shared between both organizations. Pursuant to the agreement, Arthrex is entitled to a certain commission on Cartiform sales. We recognize the full sales price as revenue and account for the payment to Arthrex as commission expense.

Research and Development Costs

We expense internal and external research and development (“R&D”) costs, including costs of funded R&D arrangements and the processing and production of clinical batches of Biosurgery products used in clinical trials, in the period incurred.

Income Taxes

Deferred tax liabilities and assets are recognized for the estimated future tax consequences of temporary differences, income tax credits and net operating loss carry-forwards. Temporary differences are primarily the result of the differences between the tax bases of assets and liabilities and their financial reporting values. Deferred tax liabilities and assets are measured by applying the enacted statutory tax rates applicable to the future years in which deferred tax liabilities or assets are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense, if any, consists of the taxes payable for the current period and the change during the period in deferred tax assets and liabilities.

We recognize in our financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties related to income tax matters are recorded as income tax expense. At June 30, 2015 and December 31, 2014 we had no accruals for interest or penalties related to income tax matters.

Income per Common Share

Basic income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted income per common share adjusts basic income per share for the potentially dilutive effects of common share equivalents, using the treasury stock method, and includes the incremental effect of shares that would be issued upon the assumed exercise of stock options and warrants.

Diluted income per common share for the three and six months ended June 30, 2015 includes the dilutive impact of options equivalent to 479,785 and 473,121 shares, respectively.

Diluted loss per common share for the three and six months ended June 30, 2014 excluded all 1,536,945 of our outstanding options as of June 30, 2014, as their impact on our net loss is anti-dilutive. As a result, basic and diluted weighted average common shares outstanding are identical for this period.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

1.  Description of Business and Significant Accounting Policies - continued

Share-Based Compensation

We account for share-based payments using the fair value method.

We recognize all share-based payments to employees and non-employee directors in our financial statements based on their grant date fair values, calculated using the Black-Scholes option pricing model. Compensation expense related to share-based awards is recognized on a straight-line basis for each vesting tranche based on the value of share awards that are expected to vest on the grant date, which is revised if actual forfeitures differ materially from original expectations.

Comprehensive Income

Comprehensive income consists of net income and all changes in equity from non-stockholder sources, which consist of changes in unrealized gains and losses on investments.

Concentration of Risk

We maintain cash and short-term investment balances in accounts that exceed federally insured limits, although we have not experienced any losses on such accounts. We also invest excess cash in investment grade securities, generally with maturities of one year or less.  We have historically provided credit in the normal course of business to contract counterparties and to the end user customers and distributors of our products. Trade accounts receivable in the accompanying balance sheets consist primarily of amounts due from end user customers and distributors of our Biosurgery products within the United States. During the first six months of fiscal 2015 and 2014, revenues from one of the distributors of our Biosurgery products, Stability Biologics, comprised approximately 17% and 11%, respectively, of our total Biosurgery product revenues. As of June 30, 2015 and December 31, 2014, receivables from this distributor comprised 5% and 13%, respectively, of our trade receivables. As discussed under “Trade Accounts Receivable,” we have not incurred any bad debt expense for the six months ended June 30, 2015. We incurred $50,000 of bad debt expense for the six months ended June 30, 2014.

Recent Accounting Guidance at June 30, 2015

We evaluated the accounting standards updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and determined they are either (i) not applicable or (ii) have an immaterial impact on our financial statements.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

2. Discontinued Operations

On October 10, 2013, we entered into a Purchase Agreement with a wholly-owned subsidiary of Mesoblast Limited, pursuant to the terms of which we sold our culture expanded mesenchymal stem cell (ceMSC) business, including Prochymal and other related assets. The Purchase Agreement provides for payment to us of $50 million in initial consideration, and payment of up to an additional $50 million upon the achievement by Mesoblast of certain clinical and regulatory milestones. Additionally, we will be entitled to earn low single to double digit cash royalties on future sales by Mesoblast of Prochymal and other products utilizing the acquired ceMSC technology.

The Purchase Agreement provides for the $50.0 million of initial payments and up to $50.0 million of contingent additional payments to us upon our achievement of milestone events, as follows:

Of the $50 million in total initial consideration, we received payment of $35 million in cash, and $15 million in Mesoblast ordinary shares, which were delivered to us upon completed delivery of the ceMSC assets.  Our ability to receive the second $50 million is subject to satisfaction of the milestones indicated above all of which are largely dependent upon the clinical and regulatory success of Mesoblast and other factors not in our control. These include many if not all of the risks and uncertainties that our ceMSC business was subject to prior to its sale to Mesoblast, including product development, efficacy and regulatory risks. We have received no such payments thus far, nor do we have any expectation of receiving any such payments in the foreseeable future. Our ability to earn royalties from Mesoblast is subject to these same risks and will require performance by Mesoblast that results in its meeting some or all of the milestones referred to above, and is thereafter also dependent upon the commercial success of Mesoblast’s ceMSC business. Royalties, if any, are payable to us in cash. Any portion of the second $50 million that becomes payable to us will be payable, at the discretion of Mesoblast, in Mesoblast ordinary shares, based on a then current valuation of such shares.  Any such Mesoblast ordinary shares that we receive will be subject to a one year holding period, with limited downside protection for a drop in the Mesoblast share price over the holding period.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

2. Discontinued Operations - continued

We eliminated the Therapeutics segment from our continuing operations as a result of the disposal transaction and have presented the assets, liabilities, and results of the segment’s operations as a discontinued operation for all periods.  Our continuing operations now represent the portion of our business previously referred to as our Biosurgery segment.

During the first fiscal quarter of 2015, we completed all of our responsibilities under a separate transition services agreement with Mesoblast and all involvement in our former Therapeutics business has ceased.  The only continuing cash flows to us related to our former Therapeutics business will be the contingent consideration and royalties provided for under the purchase agreement, as described above.  We received no such contingent payments or royalties in the first six months of fiscal 2015 or full fiscal year 2014.

Summarized operating results of discontinued operations are as follows:

Revenues from our former Therapeutics business historically consisted primarily of collaborative research agreements and royalties. Because of the disposition of our Therapeutics business in 2013, we will no longer incur related research and development expenses related to these discontinued operations. Our discontinued operations also earned royalty revenues and cost reimbursement under an adult expanded access program. Royalties were earned on the sale of human mesenchymal stem cells sold for research purposes. We recognized this revenue as sales were made.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

3. Segment Reporting

Prior to the sale of our Therapeutics business in 2013, we managed our business in two operating segments: our Biosurgery segment and our Therapeutics segment.

Our Biosurgery segment is focused on the development, production and distribution of biologic products for wound care, cartilage repair, and orthopedics to harness the ability of cells and novel constructs to promote the body’s natural healing. We launched Grafix for commercial distribution in 2010, began distribution of Ovation in early fiscal 2011, and began distribution of Cartiform during 2013. We transitioned Ovation to OvationOS (now branded as BIO4) during the second half of 2014. The initial commercial sale of BIO4 through our collaboration with Stryker occurred in the first quarter of fiscal 2015. We have continued to increase our distribution volume of these products since their respective commercial launches and are developing additional products for future commercialization.

Our Therapeutics segment focused on developing and marketing products to treat medical conditions in the inflammatory and cardiovascular disease areas. Its operations focused on clinical trials and discovery efforts.  As disclosed in Note 2 — Discontinued Operations, in October 2013 we entered into a Purchase Agreement with Mesoblast, pursuant to the terms of which we sold our culture expanded mesenchymal stem cell business, including Prochymal and other related assets.

Given the sale of our former Therapeutics segment, we now have only one operating segment.  As such, our financial statements present the assets, liabilities, and results of the former Therapeutics segment as discontinued operations for all periods presented, and our continuing operations now represent what was formerly our Biosurgery segment.

4. Property and Equipment

Property and equipment at June 30, 2015 and December 31, 2014 are as follows:

Depreciation and amortization expense for property and equipment was $547,000 and $441,000 for six months ended June 30, 2015 and 2014, respectively. Depreciation and amortization expense for property and equipment was $280,000 and $227,000 for three months ended June 30, 2015 and 2014, respectively.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

5. Inventory

As of June 30, 2015 and December 31, 2014, inventory for our Biosurgery business consists of the following:

Prior to the transaction described in Note 2—Discontinued Operations, we did not carry any inventory for our Therapeutics products, as we had yet to launch Prochymal for commercial distribution.

6. Share-Based Compensation

In April 2006, we adopted our 2006 Omnibus Plan. We amended and restated this plan in 2008 and 2010, and further amended it in 2012 and 2014, in each case to, among other things, increase the number of shares available for grant. In addition, we had previously established our Amended and Restated 1994 Stock Incentive Plan. Both Plans authorize the issuance of various forms of stock-based awards, including incentive and non-qualified stock options, stock purchase rights, stock appreciation rights and restricted and unrestricted stock awards. A total of 3,000,000 shares of our common stock have been reserved for issuance under the Amended and Restated 2006 Omnibus Plan, and 736,378 shares were reserved under our Amended and Restated 1994 Stock Incentive Plan. We ceased all grants under the Amended and Restated 1994 Stock Incentive Plan concurrent with our initial public offering in August 2006. As a result, no shares are currently available for future awards under the Amended and Restated 1994 Stock Incentive Plan. At June 30, 2015, there were 395,656 shares available for future awards under the Amended and Restated 2006 Omnibus Plan.

In connection with the stock options exercised during the six months ended June 30, 2015 and 2014, we received cash proceeds of $716,000 and $1.4 million, respectively. In connection with the stock options exercised during the three months ended June 30, 2015 and 2014, we received cash proceeds of $388,000 and $766,000, respectively. During the three months ended June 30, 2015 and 2014, the Company recognized $779,000 and $654,000, respectively, of stock-based compensation expense. During the six months ended June 30, 2015 and 2014, the Company recognized $1.6 million and $1.5 million, respectively, of stock-based compensation expense. At June 30, 2015, there was $4.3 million of total unrecognized compensation costs related to non-vested stock options, which is expected to be recognized through fiscal 2019.

A summary of stock option activity for the six months ended June 30, 2015 is as follows:

The weighted fair value of options granted during the six months ended June 30, 2015 was $17.92 per share.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

7. Income Taxes

We calculate our interim tax provision in accordance with the guidance for accounting for income taxes in interim periods. At the end of each interim period, we estimate the annual effective tax rate and apply that tax rate to our ordinary quarterly pre-tax income from continuing operations. The tax expense or benefit related to significant, unusual or extraordinary discrete events during the interim period is recognized in the interim period in which those events occurred. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.  For the three and six months ended June 30, 2015, the tax expense from continuing operations was $367,000, and $979,000, respectively. For the three and six months ended June 30, 2014, the tax expense from continuing operations was $130,000 and $0, respectively.

8. Investments Available for Sale

Investments available for sale consisted of the following as of June 30, 2015 and December 31, 2014:

The cash equivalents detailed above represent highly liquid investments with maturities of three months or less when purchased that are held in our brokerage investment accounts.  They are classified as investments available for sale as the amounts represent investments that have matured and are anticipated to be reinvested in debt securities in the near future.

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OSIRIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (continued)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

8. Investments Available for Sale - continued

The following tables summarize the securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2015 and December 31, 2014: